Iowa accelerates tax reform

Iowa’s spending restraint has allowed the Hawkeye State to accelerate previously-enacted tax reforms. Thanks to a package of new tax reforms, Iowa’s income tax will be lowered to a flat 3.8% beginning in 2025, far less than half the state’s 8.98% top rate when Iowa’s tax reforms began. 

The Hawkeye State’s accelerating tax relief adds pressure on Nebraska’s eastern border, proving once again that states can fall behind on tax competitiveness by simply standing still. Nebraska enacted the nation’s best tax reforms in 2023, yet Iowa is responding by advancing its reforms still further. 

And that’s not all. One of the benefits of a low, flat tax rate is that it allows families and businesses to plan their finances with certainty. Iowa is looking to lock in certainty through constitutional law with a pair of tax amendments that will ensure Iowa stays competitive for generations. 

First, Iowa lawmakers are asking voters to approve a constitutional amendment that will require a two-thirds supermajority vote of the legislature in order to raise taxes. This amendment mirrors a similar provision that Florida added to their constitution. Seventeen states, including progressive states like California and Oregon, require a supermajority vote to raise taxes. Nebraska should join this group. 

Iowa lawmakers referred a second amendment for constitutional consideration that will protect the state’s single-rate tax system. Iowa’s historical multi-rate tax structure will become a single-rate 3.8% in 2025. And Governor Reynolds and other Hawkeye lawmakers have signaled their intent to lower the rate still further in future legislative sessions.  

In sum, Iowa’s income tax system will become more competitive more quickly. Voter approval of constitutional updates will make these reforms nearly unshakeable.  

While Nebraska lawmakers have focused on the property tax in 2024, it is crucial to ensure all funds for property tax relief are delivered in full by enacting strict caps on property taxes. Nebraska lawmakers should anticipate Iowa’s income tax becoming more competitive every year. With such a competitive landscape, there’s not a dollar to spare on subsidizing local spending while surrounding states accelerate tax relief.